China steadies market nerves while JB Hi-Fi shareholders see the silver lining in Dick Smith's cloud

While, the nervousness created by yesterday’s sharp share market selloff is likely to linger, moves by Chinese authorities to stabilise their stock market has brought temporary calm to international markets.

Investors are conscious of the fact that problems in China’s market last year had a flow on effect to other stock markets. While China’s market is relatively small and undeveloped compared to stock markets in other major economies there is a tendency to view it as a proxy for wider problems in the management of China’s economy. At the moment though, investors appear to have been placated not only by yesterday’s moves to support China’s market but also by statements that authorities will continue to work towards improving market governance. 

JB Hi-Fi shares have gained more than 5% over the past 2 days despite overall market weakness. It’s clear than investors are seeing Dick Smith’s problems as a positive for JB Hi-Fi.  Profit margins are likely to improve as discounting pressure from Dick Smith’s aggressive stock clearance sales winds back. In the medium term JB Hi-Fi may also enjoy reduced competitive pressure as Dick Smith either closes stores or shuts down altogether.

Weaker than expected European inflation reinforced market views that Central Bank divergence is a likely theme for markets in 2016. While the Fed will be lifting rates, these inflation figures are likely to leave the ECB with a clear easing bias. This triggered US Dollar buying overnight that saw the Aussie Dollar testing chart support around .713